Why You Should Avoid Car Title Loans

We all have times where we are desperate for money and may not make the most financially sound decisions. In these times we are usually a little quicker to accept terms of a loan or gift that we may not have considered thoroughly. This is how we end up making bad decisions like agreeing to a car title loan that will cost an amazing amount of money in interest. Here is how it works:

The lender, not necessarily a financial institution just anyone that lends you the money, agrees to give you a small amount of money as a loan. As collateral for the loan the person receiving the loan puts up the rights to their car, or the "title". This may seem like a good idea, but...

If you happen to fail making payments for your small, short-term loan the lender you have agreed to terms with can repossess your vehicle. Now, to some this sounds fair as you needed the money and put up your car in exchange for it, but the problem is...

The terms of the car title loan are usually astronomically high in interest, benefitting the lender. Interest rates on car title loans are not regulated and can sometimes end up being over 300% in interest. This means that your payments early on will be nothing but interest.

The payment terms are often very aggressive, usually requiring you to pay every two weeks. If you even get behind by one payment you will have a hard time catching up and before you know it, your car is gone and you are in even worse shape than you started out. This is the danger with car title loans, the lender ends up making thousands of dollars for a small investment and you wind up with nothing.

State governments are already trying to reign in this process as consumers are being taken advantage of at an alarming rate. The only way to avoid the pitfalls is to avoid getting this type of loan altogether. It is always better to try to save a little here and there and then live within your means. If you are in a situation where you need to borrow money always go to a reputable lender and agree to traditional loan terms.

Car title loans may be the answer for you on the surface, you need money now and you get it, but there is a price to pay. Make a smart decision and find your funds somewhere else.